Socialism Vs. Capitalism & Everything In-Between.
We have all grown up seeing that we live in a world that divides our planet into territories. These territories are bordered by imaginary lines that divide us from them. The borders in which we live play a major role in developing each of our identities, our customs or traditions, the way we conduct ourselves in business and personal endeavors. Some of us have grown up with an expectation of freedom to choose, while others depend on their government to act in their best interest. Depending on what country you call home, you either participant in a free market economy, a controlled economy, or a mixture of both. In this report we are going to look at what creates each type of economy and where we can find examples of each within the world.
First we are going to analysis the characteristic of a Free Market Economy. In a free market, the government’s role is to “make sure that the market is stable enough to, properly, conduct business” (Freidman). In purity, the system hopes to “eliminate subsidies for industries, the pre determination of prices, and the amount of regulation controlling certain industry sectors”(Freidman).
The implementation of a free market introduced individual property rights, which allows citizens to voluntarily exchange property/resources at a price arranged solely by the mutual consent of the buyer and seller. The seller is free to choose if the price being offered is worth their property; without threat of physical force, fraud, or coercion by a third party. It is for this reason that in a Market Economy, Capitalism prevails. The driving force behind a capitalist market is the entrepreneurs desire to turn a profit.
Another major characteristic of a free market is free competition. This basic rule of a fee market states that people are free to compete without interference from the government or any other outside force. This rule assumes that the best product will win over an inferior product. The rule of free competition paved the way for the theory of supply and demand, when operating within a capitalist economy.
The theory of supply and demand articulates that the supply of products and services are determined by the demand for them. This verbalizes to say that “when supplies increase, prices tend to drop. If prices drop, demand usually increases until the supplies are depleted. Once the supply is depleted the price will rise once more” (Freidman). This will continue in a cycles of ups and downs to keep the prices from getting too high or too low.
In modern times, more nations are trending towards a free market (Sorman). According to my research into political rankings across the world; Hong Kong, Singapore, Australia, Switzerland, and New Zealand, in order, are the five freest political systems in the world(Heritage House).
On the opposite side of the economic spectrum is a centrally planned economy. In a planned economy industry is owned and managed by the government. The government controls what is brought to market and what price the commodity or service will be sold for. The theory of supply & demand does not drive consumer choices. In a planned economy the government aims to provide goods and services to the masses, as opposed to turning a profit (Sen).
Historically, centrally planned economies tend to be practiced in socialist societies. Typically the government creates a five year plan for each sector and region of the country. This five year plan is broken down into short term plans to achieve goals that will robust the economic growth and increase production efficiency (Gregory). The goal of a centrally planned economy is to “allocate all resources, as planned, and utilize them and the nation’s capital, and labor in the most effective way possible”(Grossman). In turn, the economy will experience a “lower rate of unemployment, since there will be a job that uses each person’s skills and abilities to the highest capacity”(Gregory).
A major difference between a free market and a planned market is that, in a planned economy there is little to no domestic competition. This is especially true if the government owns a monopoly business in a key industry. Also, other disadvantages of a centrally planned economies are;”the lack of consumer choices and the in-efficiency of the industries”(Grossman). Often times the inefficiency of a command economy leads to the over production of one item and not enough of another item. This miss appropriation leads to costly waste.
Command economies see a low level of autonomy and are discouraged from making any decisions without consent from the commanding force. As a result there is a lack of innovation . They lack individual freedom to exercise their creativity. This often leads to repression. As of the 2014 Index of Economic Freedom, the 5 most repressed countries are Eritrea, Venezuela, Zimbabwe, Cuba, North Korea, and the Central African Republic.(Heritage House).
In-between these two drastically different economic systems sit the mixed markets. Mixed economies operate within a compromise between a classic socialism and laissez-faire capitalist philosophy. Typically, in a mixed economy individual property rights are protected (Freidman). This leaves a market economy with government oversight over key industries and public goods. A few of the key industries that are protected, in most mixed economies, are the financial, energy and communication sectors.
While businesses and corporations are free to operate they still have to follow certain laws and regulations that are set and enforced by the government. Examples of these laws are intellectual property, antitrust, environmental, and labor regulations (Rostow).
A citizen of a mixed economy is allowed to own their own property but they have to pay taxes to the government. In turn the government invests funds into state owned properties and services that promote a positive social welfare benefit to the community (Rostow). An example of community properties can be seen in American libraries, schools, water systems, hospitals and roads.
As of today there are more economic systems that operate as a mixed market, as opposed to a purely capitalist or command economy. The origins of a free market can be traced all the way back to the Babylonians who, according to Karl Moore and David Lewis, “ran big family firms that planted subsidiaries in foreign lands”(Moore). The first modern state to move towards a free market was Greece. As Moore and Lewis state, “The Greek…traders were independent, self employed, and risk takers who sailed across the Back Sea… They began to coin money and negotiate prices”(Moore).
The chart, following this essay, will give you an example of mixed markets who participate in mostly free to mostly unfree systems. The chart allows you to see where they lie on the political spectrum. When you analyze the rankings found by the Wall Street Journal and the Heritage Foundation; “Botswana, Colombia, Ireland, Japan, and the United Kingdom are considered “Mostly Free” economies; which are free markets with very little government oversight. The Dominican Republic, Mexico, the Philippines, Poland, South Africa, and Rwanda are considered “Moderately Free”. Moderately free markets operate as free markets but have a little more government regulation, than mostly free markets. From here the world’s economic scale shifts to the countries that have more regulation and government oversight. The following countries are considered “Mostly Unfree”; they are, China, Egypt, Bangladesh, Fiji Kenya, Nigeria, and Sierra Leone(Heritage House). Mostly unfree economies have a very little private sector. Instead they operate with heavy government intervention.
When analyzing the chart, that follows, I began to see a few similarities between the countries listed and their economic systems. For example countries who land on the Free half of the economic spectrum tend to have: “higher levels of political and civil rights” (Freedom House); Upper middle to high incomes (The World Bank), except for the Philippine which has a low middle income average, and they all seem to be developing human right and aiming to achieve a better quality of life(The United Nations Development Programme).
The biggest difference can be seen when evaluating the Transparency International Corruption Report and the Ease of doing or opening a business ranking, done by the World Bank. According to Transparency International the most corrupt economies in the world are the Central African Republic, North Korea, Mexico, the Philippines, the Dominican Republic, and South Africa. Three of the most corrupt nations, the Dominican Republic, South Africa and Mexico, appear to have upper- middle incomes(The World Bank); while, the Central African Republic, North Korea. Bangladesh, Kenya, and Sierra Leone have low incomes(The World Bank).
You would think that the more corrupt and harder to handle an economy is the harder it would be to open a business. According to Transparency International and the World Bank, Egypt has proven that a corrupt nation, who is difficult to conduct business with; but, has a market that is great for those who want to open a business. This trend is shared by Afghanistan, Bangladesh, and Sierra Leone, These are also the countries that lack basic human right protections and where the standards of living are much lower than the average country.
Now the exact opposite seems to be shown in Japan. Japan appears to have a low amount of corruption and a high level of ease when conducting business within markets; however, my findings tell me that opening a business in Japan would be harder than conducting business for a company (Overholt). This relationship can also be seen in the figures for Fiji and Poland. These countries have done a better job of protecting basic human rights and raising their living standards.
Many of the countries who participate in a mixed economy could be considered crony capitalist or Socialist influenced (Macey). In the 2014 Crony Capitalism Index, published by The Economist, Hong Kong, Russia, and Malaysia hold the top three crony capitalist positions. The United States and Greece have seen their fair share of cronyism too.
Cronyism spans the political spectrum from mostly free to mostly unfree nations. The United States exhibited many instances of crony capitalism before and during the Great Recession of 2007-09. In 2009 Industries who were considered too large to fail had to ask for special subsidies and tax writes offs to continue to conduct business in the American market. If you study the Goldman Sachs and Morgan Stanly contribution to the Great recession you will see an example of a crony capitalist market. As Jonathan Macey puts it, “the main point is simply that as economic regulation increased and competition decreased, crony capitalism grew.”(Macey). Crony capitalism is defined as describing an economy in which success in business depends on close relationships between business people and government officials.
Aside from Crony Capitalism you also have Crony Socialist ideologies . Crony capitalism theorist believes that a business’s success depends on close relationships between them and government officials. In crony socialism states, and private companies use the power of large governments to better their position. These corporations will then bail on the free market once they have achieved a comfortable amount of success. A current example of crony socialism can be seen by researching the loan won by Joe Hynansk, who is a friend and contributor to VP Joe Biden and President Obama’s campaigns, received a $20 million loan, that is backed by the government, to build a luxury foreign auto dealership in Ukraine (Investor's Business Daily).
Now that you have a solid understand of how economic systems operate, study the chart that is attached. Do you notice any trending characteristics that I have not mentioned? Do you feel that the shift towards a free market is, as Joe Kernen of CNBC’s Squawk Box, puts it “history’s strongest force for freedom and human advancement”? This is an answer that we may not learn in my life time, but I am glad to live in a country that offers me choices.

Bibliography
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